The country’s banking sector has gained strong base in the year 2014, overcoming the adverse impact of the global economic recession and the domestic political unrest of the previous year.
Mainly because of Bangladesh Bank’s timely measures and government’s support, the sector has gained the capacity to cope up shock arises from internal and external sectors, said a central bank statement issued yesterday.
It said Capital Adequacy Ratio (CAR), which indicates the risk absorbing capacity of banks, improved to 11.35% in December from 10.57% in September last year.
The ratio went up as the provisioning requirement of the bank reduced during the quarter due to the regularisation of huge default loans through taking advantages of relaxed policy of the loan rescheduling, said a senior executive of the central bank.
The provision shortfall of the banking sector came down to Tk796 crore during the last quarter of 2014 from the shortfall of Tk2,400 crore in the previous quarter.
The four state-owned Sonali, Janata, Agrani, Rupali banks rescheduled default loans of around Tk8,000 crore from the year 2013 till September last year.
Bangladesh Bank also said that corporate governance has been established in the banking sector as several measures were introduced, defining the formation and responsibilities of the boards of the commercial banks.
The boards of state-owned banks, however, have allegedly been found guilty in a series of anomalies committed from January to June last year.
According to a report of the central bank, the boards of five state-run banks – Sonali, Rupali, Janata, Agrani and Bangladesh Krishi Bank (BKB) – did not maintain any formality in terms of ensuring single borrower exposures, renewal of loans, taking compromise amounts at the time of new loan facilities, loan rescheduling and loan classifying.
The boards appeared to have centralised their loans to a number of similar groups, individuals and companies, violating the single borrower exposure limits and putting the banks into a vulnerable conditions.
According to the report, the board of directors of the state-run banks provided loans and extended limits repeatedly to the same groups simply violating their respective single borrower exposure limits.
They also rescheduled loans to the groups that had already committed fraud with the respective banks and did not have the capability of paying installments of the rescheduled loans.
“It is not true that the banking sector has idle money of Tk90,000 crore,” said the statement.
Bangladesh Bank, however, claimed that only Tk3,364 crore remained idle, which is not abnormal considering the number of 56 banks.
It observed that the credit flow improved to 13.99% at the end of the year 2014 despite unfavorable political environment.
The bankers, however, do not agree with the Bangladesh Bank’s claim, saying that the banks had to cut the lending rate due to lack of credit demand.
“Banks have increased their investment in government bills as they are badly suffering from lower credit demand in the market,” said a senior executive of a private bank.
As a result, they are loosing profits because of minimum return from their investment compared to the earnings that they might get through lending, he added.
Under the circumstance, banks cut the lending rate to boost credit demand so they can get comparatively better return from lending instead of government bills, he said.
The lending rate in the banking sector came down to 12.32% in January 2015, hitting a four-year low, from 11.34% in 2010.
The rate was 12.46% in December last year, according to the central bank data.
The interest rate spread – the gap between advance and deposit rates – came down to a 10-month low in January, due to the lending rate cut by the banks.
The spread stood at 5.06% in January, which went up to 5.21%, hitting a five-month’s high, in December last year, according to Bangladesh Bank data.
Earlier, the gap was 5.06% in February last year with highest 13.40% lending rate of the year.
The private sector credit growth still remained slow amid political unrest. The credit growth to private sector stood at 13.50% in December last year, which was below from the ceiling of 14% that was set in the first half monetary policy of 2015.
